MV Act | Insurance Company Can Seek Recovery From Vehicle's Owner Only After Paying Compensation Awarded By Tribunal: AP High Court

The Andhra Pradesh High Court, in a recent case, applied the principle of pay and recover and held that an insurance company is entitled to file an execution petition against the owner of an offending vehicle only after paying the compensation awarded by the Motor Vehicle Claims Tribunal to the claimant.

Justice VRK Krupa Sagar in his order held,

“On the issue of liability to pay the compensation by the insurer, if there was fundamental breach of insurance policy, the insurance company could be absolved of the liability. However, in those cases where the third party claimant suffered serious injuries and acquired permanent disability such as the one available in the case at hand, the consistent view taken by the Constitutional Courts is to apply the principle of pay and recover. In such view of the principles of law it is difficult to approve the impugned award to the extent that it absolved the insurance company totally. In the given facts and circumstances of this case this Court records that respondent No.2-Insurance Company need not shoulder the liability and indemnify the owner of the offending vehicle. However, this is a fit case to apply the principle of pay and recover. Therefore, the compensation awarded by the Claims Tribunal has to be first paid by the insurance company and thereafter the insurance company is entitled to file execution petition against the owner of the offending vehicle/respondent No.1 for recovering the same.”

Background

The High Court was hearing an appeal filed under Section 173 of the Motor Vehicles Act challenging an award passed by the Chairman, Motor Accidents Claims Tribunal-cum-IV Additional District Judge, Kadapa.

On 23.08.2008, the driver of a trailer and tractor (offending vehicle) who was driving rashly and negligently, dashed into an auto rickshaw in which the appellant Gajulapalli Vasundhara, was travelling.

Due to the collision, the appellant suffered fractures and other injuries all over her body. The injuries caused 30% physical disability to the appellant who at the time of the was accident 22-years-old attending agricultural works and earning Rs.5,000 per month. A case was registered at Porumamilla Police Station against the driver of the offending vehicle.

Subsequently, the appellant filed for compensation, asking for a claim of Rs.3,00,000. In this, the owner of the offending vehicle was assailed as Respondent No.1 and the Insurance Company as Respondent No.2.

The Claims Tribunal held that the accident and consequent injuries were due to the rash or negligent driving of the offending vehicle by its driver. At the time of the occurrence of the accident, the driver of the offending vehicle had no valid and effective driving licence. Since the offending vehicle was entrusted to the driver without a driving license, the same amounted to breach of insurance policy. Hence, the Claim Tribunal absolved the insurance company of the liability to pay and subsequently stated that the driver was liable to pay compensation and the owner of the offending vehicle was vicariously liable to pay compensation.

Aggrieved, the appellant challenged the order of the Claim Tribunal before the High Court.

Findings

Two issues arose before the court-

(i) whether the Claims Tribunal committed an error in not fastening liability on the insurance company and at least should have applied the doctrine of pay and recover?

(ii) whether the compensation required modification in light of the contention that a higher rate of interest should have been awarded?

While insurance companies should be absolved of liability in cases where there is a fundamental breach of insurance policy, the Court held that application of the principle of pay and recover is warranted in cases where the claimant suffers serious injuries and acquires permanent disability. The court observed that it cannot be said that insurance company should be completely absolved of its liability. 

With respect to the second issue considering a higher rate of interest to be awarded to the appellant, the Court held,

“Courts have been consistently holding that the interest that is paid by nationalized banks would be interest that could be ordered to be paid. In the case at hand, the claimant requested for 16% interest. The Claims Tribunal awarded 6% interest. Learned counsel for the appellant/claimant failed to show that at the material point of time the nationalized banks were granting more interest than 6%. In such circumstances the rate of interest as granted by the Claims Tribunal cannot be called as incorrect. No other points were argued for consideration.”

Thus, the Court partly allowed the appeal, modifying the award and directed the Insurance Company to pay the compensation amount of Rs.2,73,000 with 6% interest per annum from the date of petition till the date of realisation within one month. After paying the amount, the Insurance Company was entitled to recover the same from the owner of the offending vehicle by filing an execution petition.

Case Details:

Case Number: M.A.C.M.A.No.144 of 2015

Case Name: Gajulapalli Vasundhara, Kadapa Dist. v. P Sreenivasulu Kadapa Dist Ano and Others

Date: 25.03.2025

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